New season brings tighter controls on compulsory supply

Fonterra is looking forward to the new season starting on Saturday when there will be tighter conditions on when other companies can ask it to supply milk.

To offset its dominance, as processor of about 90% of New Zealand's milk Fonterra is required to supply up to 5% of the milk it collects to other processors at a regulated price.

Fonterra had an issue with the freedom its competitors had to decide when they would take the milk, saying it allowed them to cherry pick without any regard for seasonal milk flows.

Chief executive Theo Spierings says the drought has meant Fonterra was required to supply large volumes of milk to competitors this season when milk flows were very low, restricting the supply to its own factories.

He says at current prices, it estimates the milk supplied to its export competitors from March to May will cost its farmers about $25 million in lost earnings.

At the same time, its competitors have had the advantage of the higher dairy prices from the supply shortage.

However, Mr Spierings says this season, which ends on Friday, is the last one when other processors can choose the milk supply.

Changes to the raw milk regulations introduced in 2012 take account of the seasonal changes in milk production or the supply curve.

It means other processors will now be required to take at least some milk during peak production months.